Posted on 9th November, 2015
Posted on 9th November, 2015
by James Codling
The rise of the Nominee, but not all are the same…
VentureFounders was one of the first alternative equity investment platforms in the UK to pioneer the Nominee structure. When forming VentureFounders, for us as a team of investment professionals it made perfect sense and was necessary to ensure that, over time, we could meet our goal of being able to demonstrate a track record of return to our investors.
Direct shareholding, currently the mainstay of equity crowdfunding, has its appeals but, over the long term, the benefits and costs of operating a nominee far outweigh the downsides of being a small shareholder with limited rights in an illiquid asset class.
Those costs are substantial for platforms and the FCA require anyone running a Nominee and handling client assets to have a much higher level of regulatory scrutiny and hold regulatory capital of at least €125,000. As such it is a large commitment on our part to deliver what we believe to be the right model.
I am therefore delighted to see that the market seems to be rapidly moving this way, which can only be good news for the businesses raising capital and investors coming in to this market. At least one new platform is scheduled to launch with this structure in the next few months and, following feedback from their clients, Syndicate Room announced over the weekend that they have decided to radically overhaul their model and move to a Nominee structure for all new investments going forward.
I believe that that our assertion was right; I speak to a large number of companies and investors on a daily basis and the almost unanimous feedback we have had is that the Nominee is by far and a way the preferred method for equity crowdfunding. Companies can see the benefit of having a large group of supportive ‘brand ambassador’ shareholders with none of the administrative hassle, investors can see the benefit of being part of a larger shareholder group with the associated rights and protections.
So what is a Nominee? Quite simply, a Nominee pools groups of investors together to fund an investment through one legal entity. They were designed to cut down the administrative burden on companies while allowing investors to retain the beneficial interest of their investment.
Although there is a lot of talk about them in alternative finance circles at the minute, they are certainly not new and in my old career in Private Equity, they were fairly commonplace. Most often they were used to fund in groups of UHNWs from the Private Banks and wealth managers in order for them to be able to commit to our funds, albeit the amounts they were being asked to commit were out of the reach of the many.
For us at VentureFounders, the Nominee is simply a tool; we use it as part of a much wider vision to deliver best practice to companies and investors alike. While it is quite clear why a Nominee is appealing to companies, used and managed in the right way it ultimately delivers more benefits to investors.
This is where VentureFounders differentiates itself and sets us apart from others. Our model is designed to ensure that we are totally aligned with our investors; whether it’s curating the best investment opportunities for them in line with our strict investment criteria or representing their interests throughout the lifetime of their investment in order to maximise return.
What’s core to that is the experience of the VentureFounders team. Our investment team have all had long-term and successful careers in private equity, investment management and corporate finance, including board level representation at a number of high profile British companies. We are complemented by a Senior Adviser panel, made up of leading industry figures, who help and support us to deliver that best-in-class vision.
Our Nominee service goes far beyond being purely a post box service and as an investor you can benefit from the following:
- Invest with confidence knowing that the experienced VentureFounders Investment Team takes on day-to-day responsibility for proactively managing your investment on once the deal has closed.
- Investors protection is paramount. Before presenting an opportunity, we actively negotiate the legal documentation to ensure you are adequately protected and get the rights commensurate with being part of a larger investor group. We always look to ensure you get anti-dilution protection, consent rights over major issues and access to information.
- As an investor, we believe that it is imperative that you are kept up to date on the progress of your investments. We ensure that we have full access to information on how our portfolio companies are performing and, importantly, access to management. On a case-by-case basis, this can include taking board level representation. This information is made available to you directly in the Portfolio section of your online VentureFounders account.
- While we all hope that the businesses we back will grow in to the next Unicorns, it is a harsh reality of early stage investing that the majority won’t make it and a large number will fail. The VentureFounders team have experience of dealing with difficult situations where value is at stake. We would be fully representing your interests to deliver the best outcome should this situation arise.